, Retail
There is a shelf in the back of almost every shop with the same six boxes on it, and everybody steps round them. They were bought in good faith, for a reason someone could explain at the time. They are now furniture.
The cost of those boxes is not what you paid for them. That money went eighteen months ago. The cost is the shelf they occupy, the stocktake time they consume, and the fact that the cash inside them is not buying anything that sells.
Turn is a rate, not a score
Stock turn is cost of goods sold divided by average stock held at cost. If you sell £180,000 at cost over a year and hold £45,000 of stock on average, you turn four times a year, which is thirteen weeks of stock.
The number on its own means nothing. A greengrocer turning four times is in serious trouble. A furniture retailer turning four times is doing well. Turn is only useful when you compare it against three things: your own category norms, your payment terms, and last year.
The comparison against payment terms is the one that pays. If you turn a category in five weeks and your supplier gives you 30 days, the stock is sold before you pay for it and that category funds itself. If you turn in twenty weeks on the same terms, you are financing it out of working capital for around fifteen weeks. Two categories with the same margin can have completely different effects on your bank balance.
Better still, use gross margin return on inventory investment. Gross margin in pounds divided by average stock at cost. It answers the only question that matters: for every pound tied up in this category, how much margin comes back. A 55% margin line turning twice a year returns less than a 22% margin line turning eight times.
Ageing tells you more than value
Most stock reports sort by value. Sort by age instead. Put every line into buckets: sold in the last 30 days, 31 to 90, 91 to 180, and nothing for six months. Then look at the value in the last two buckets.
That number is your real dead stock figure, and it is usually two or three times what the owner would have guessed. It grows quietly because nothing forces a decision. Nobody walks past and thinks, that is £4,000 of my overdraft.
Once the buckets exist, the conversation changes from opinion to policy. A line with no sale for 180 days gets marked down automatically. Not discussed, not defended, marked down. The point is not that the rule is always right. The point is that a rule acts and a discussion does not.
Mark down early, and mean it
The instinct is to hold the price, because reducing it feels like admitting the buying decision was wrong. It was. That happened already, and the price you paid has nothing to do with what the stock is worth now.
Two facts make early markdown the cheaper option.
- The first markdown recovers more than the third. A line reduced by 20% at week 12 usually clears more units at a better price than the same line reduced by 50% at week 40, because at week 40 it is old, tired and often out of season.
- The cash comes back sooner, and cash that comes back sooner buys stock that sells.
Your accountant will eventually force the issue anyway. Under FRS 102, stock is carried at the lower of cost and estimated selling price less costs to complete and sell. If it will never sell at cost, the balance sheet should already say so, and a write-down is a deduction against profit in the normal way. That is an accounting entry. Clearing the shelf is the actual gain, and it only happens when the goods physically leave.
Do not over-engineer the clearance. Marked-down bins near the till, a table by the door, a single weekend event, a wholesale disposal at whatever it fetches, a donation that at least buys goodwill and removes the storage cost. VAT is due on what you actually receive, not on what you hoped to receive, so selling below cost is not a VAT problem.
The buyer who buys what they like
Almost every ageing problem has a human cause, and it is nearly always the same one. Somebody buys what they personally admire rather than what the shop sells.
The signs are consistent. Unusual colours. The top of a range in a shop where most customers buy the middle. Lines with good stories and no rate of sale. One supplier represented far beyond their share of sales because the rep is good company.
The fix is not to remove judgement, because judgement is how you find the things nobody else has. The fix is to make the buyer live with the consequence in a visible way. Every new line gets a review date and a rate of sale it needs to hit. Missing it is not a failure, it is a trigger.
Give yourself a smaller version of the same discipline on repeat orders. Before reordering, look at the last four weeks' rate of sale rather than the order quantity from last time. Repeat orders are where dead stock is quietly born, because nobody thinks of them as a buying decision at all.
The space it was really costing
When you finally clear it, note the gap it leaves and what goes into it. That comparison is the strongest argument you will ever have for doing it sooner next time. If £4,000 of dead stock becomes £4,000 of stock turning six times a year at 35% margin, the swap is worth roughly £8,400 of gross margin a year that you were not earning while the boxes sat there.
Where this shows up in the game
Shops are part of Business Baron's full game, and e-commerce is one of the five free business types. About twenty trades in the game live on stock: you order against a forecast, sell what you can, and write off the rest. Stock that stops moving is cash that stopped working, and the monthly figures show it long before the shelf does.